California Offers Private Sector Workers a Deal They Should Refuse

The wonderful state of California, having solved all its major financial problems (including the two underfunded pension giants CalPERS and CalSTRS), has decided that private sector employees need their help.  In September, 2012 Gov. Jerry Brown signed the California Secure3 Choice Retirement Savings Program into law.  This law only applies to workers not covered by an employer-provided pension plan.  It requires employers to withhold three percent of each workers wages, forwarding that amount to the pension authority.  The program is run by a seven-member board headed by the California State Treasurer — an elected position in California government. Despite claims to the contrary (more coming) this is not entirely a voluntary program.  Workers must opt out of the program and are only allowed to make that choice once every two years. There is some uncertainty about whether employees will be automatically enrolled every two years and forced to opt out at that time.  See what follows for the varying opinions. If the worker does nothing, enrollment in the program is automatic. California offers private sector workers a deal they should refuse.

Remember, these employees are not covered by a retirement plan.  They are mainly low-income.  The reason they are not saving for retirement is that they are poor.  Many are young.  Many will see their incomes increase as they get older — and a few will become very wealthy.  Do these folks really need to lose three percent of their pay?

What Others Say

Here’s the description offered by the blog:

“The California Secure Choice Retirement Savings Program

1. Employees may choose to opt out. This program is only required to be offered by employers; it is not required to be utilized by employees. Employees who opt out will automatically be re-enrolled every two years, but can opt out again.

2. Employers who do not allow for the payroll reduction will be fined $500 per eligible employee.

3. The program stipulates that 3% of employees’ pay be withheld and sent to the state’s new CSCRS Investment Board, though the Board can change the withholding amount anywhere from 2% to 4%.

[pullquote]But in reality no one will be forced to contribute to California’s proposed Secure Choice Retirement Savings Plan. The program would only be for workers whose employers don’t already sponsor a pension plan or a 401(k) for their retirement, allowing them to pay into an account that would pay benefits based on account contributions and investment returns. Any workers who don’t want to participate can opt out.[/pullquote]

4. Professional independent investment managers—private firms and the California public pension manager, Public Employees’ Retirement System, that will be picked through a bidding process—will conservatively manage the money collectively contributed by the withheld wages (expected to amount to approximately $6.6 billion). There will be an oversight board.”

Media Matters has this to say about the “voluntary” nature of the plan →

“Allowing them to pay into an account?”  Only a left-wing political group would dare use that language.

But there’s hope.  The law has not yet been implemented according to the National Association of Plan Advisers:


The first step toward implementation of SB 1234 is to secure non-state government funds for a market analysis to determine if the program can be self-sustaining. When the study is completed, assuming the conclusion is that the program should go forward, the design of the default program can begin. This phase presumably will include getting commitments from vendors interested in participating in, and funding, the Retirement Investments Clearinghouse on the program website. The Clearinghouse is to provide information on registered vendors and employer-sponsored plans.

When design of a program that meets the parameters of SB 1234 is completed, legislative approval will have to be obtained before proceeding to implementation. Once approval is obtained, and implementation is complete enrollment could begin. The requirement to provide a workplace retirement savings arrangement would be phased in starting with employers with 100 or more employees within 3 months after the program opens, employers with 50 to 99 employees within 6 months, and all others within 9 months.”


Ah, government.  Brings to mind an old joke. In heaven, the Germans are in charge of running the trains, the French do the cooking and the Italians are in charge of romance.  In hell the Germans do the cooking, the Italians run the trains and the French run romance.  Government combines the efficiency of the Italians with the implementation skills of the French.  The law has been on the books for ten months.  As far as I can tell there has been nothing done in the direction of implementation.  And I could find no evidence that a board has even been appointed.  Perhaps this program will collapse under its own weight.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.